Interview with the CEO of Chinalco

How is outbound mining investment from China being influenced by macro trends, and how are you evolving your investment and mining strategy to cope with this?

Mr Peng Huaisheng: The global economic development will surely result in more demand for raw materials, leading the mining companies to expand production. China’s economic development also has a positive effect on the domestic demand in natural resources. In response to those maco trends, we have established ourselves as a company that develops a variety of commodities. We have successfully developed the Toromocho copper mine in Peru, built a strong brand internationally and achieved recognition by the local community.

What do you think is the biggest issue for China’s outbound mining investors going forward and what advice can you give them?

Mr Peng Huaisheng: The biggest issue is lack of internationalization. I think Chinese companies investing overseas should become more internationalized, both in mind and in action. Besides internationalization, Chinese investors should also pay attention to the localization. Essentially, Chinese investors must combine internationalization, localization and Chinese culture while investing overseas.

What are the biggest challenges that you currently face as a mining investor and acquirer? How are you looking to solve these challenges?

Mr Peng Huaisheng: The biggest challenge we have faced is how to obtain high-quality mining projects. This requires us to build vast communication channels, improve financing capabilities, and strengthen our ability to handle risks and other complex issues. We should also adopt different strategies according to various kinds of projects, commodities and regions.

What projects / regions are you most interested in now and why?

Mr Peng Huaisheng: Recently, we are still focusing on copper and placing emphasis on Latin America. We are positive about copper’s long term future – the price will remain relatively high and the demand growth will be stable. We already have successful projects there and have a better understanding of the investment environment, thus reducing the risk for us.

Thank you to the team at Mines and Money Beijing for this interview.

Research and Markets: In-depth Research Report on China’s Mining Equipment Industry, 2013-2017

In 2012, the scale of China’s mining and quarrying equipment market has reached CNY 352.6 billion, and the market was relatively concentrated; the sales income of Henan, Liaoning and Shanxi, the top 3 provinces of mining equipment manufacturing, accounted for 51% of the total market share in China. Of which, Henan province still occupied the first position; CITIC Heavy Industries Co., Ltd. and Zhengzhou Coal Mining Machinery Group Co., Ltd. have great influence in this industry.

By the end of 2012, there were more than 1,400 mining equipment manufacturing enterprises in China, of which, 18 of them were in large scale and most of these enterprises were in small and medium size. The market share of top 5 enterprises was about 18.7%.

In 2012, affected by the demand of infrastructure and mining resources, China’s mining dedicated equipment industry recovered rapidly; the output in Henan Province reached 1,511,638.16 tons, increased by 24.23% year-on-year, accounting for 22.73% of the national total output. Followed by Shandong, Sichuan and Hebei, the output proportion accounted for 12.15%, 8.25% and 8.12% respectively.

At present, China is still in the crucial period of accelerating infrastructure construction and industrial transformation; in the aspects of mining, infrastructure construction and high-speed railway construction, the demand for mining equipments is considerable. During the Twelfth Five-Year period, the domestic mining and quarrying equipment manufacturing industry will continue to maintain a rapid growth rate, and the growth rate of annual average output value is expected to reach about 22%.

The changes of mining equipment demand are closely related to geographical distribution of mineral resources and mining industry. Due to different geological mineralization conditions, the distribution of some important minerals is very concentrated. In the proved coal reserves, about 90% are concentrated in North China, Northwest and Southwest, while the coal reserves in Northeast, East China and Central South only account for about 10%. As for the proved phosphate reserves, about 70% are concentrated in Yunnan, Guizhou, Sichuan and Hubei. Iron ore resources and mining activities are concentrated in Liaoning, Hebei, Sichuan and Shanxi.

In the future, the mining equipments will develop towards the direction of large-scale, automatic, environmental protection and optimization. Combined with China’s mineral characteristics and mechanical processing level, developing mining equipments with advanced principle, simple structure, high manufacturing level, high efficiency, low consumption and good durability will be the development direction in the future.


China Molybdenum to Pay $820 Million for Rio Copper Mine

China Molybdenum Co. (3993), the nation’s second-biggest producer of the steelmaking material, agreed to pay $820 million for Rio (RIO) Tinto Group’s Northparkes mine inAustralia to add copper production.

The sale is expected to be completed by the end of the year, Rio said today in a statement. London-based Rio owns 80 percent of the mine with the balance held by Sumitomo Corp. (8053), which has the right to match the offer. It’s valued at about $800 million, Citigroup Inc. said in a February report.

Copper ore moves along a conveyor belt from a stockpile before being ground at the processing plant of Rio Tinto Group’s Northparkes copper and gold underground block cave mine in Parkes, New South Wales, Australia. Photographer: Carla Gottgens/Bloomberg

Buying the stake, a transaction which would be the third-largest purchase by a Chinese company of a mining asset this year, gives China Molybdenum control of an operation that provided 43,100 metric tons of mined copper for Rio in 2012 as well as an underground training center. The world’s second-biggest mining company is joining global rivals in selling assets after falling commodity prices crimped revenue.

The sale highlights “that there are Chinese companies wishing to invest offshore,” Glyn Lawcock, Sydney-based head of resources research at UBS AG, said by phone. “It shows people are looking for copper assets as well.”

Rio rose 0.9 percent to A$57.75 at 10:58 a.m. in Sydney trading. The stock has dropped 13 percent this year.

Copper, used in electrical wiring and tubes, is expected to gain until at least 2015, according to analyst forecasts compiled by Bloomberg, as aging ore bodies and few large new discoveries keep the metal’s supply and demand balance tight.

Insufficient Size

“Northparkes is a successful business but is not of sufficient size to be a good fit with our strategy,” Rio Chief Financial Officer Chris Lynch said in the statement. “The agreed sale of Northparkes follows our recently completed divestment of the Eagle nickel project in theUnited States.”

Before today, Chinese companies had announced 67 mining deals this year worth a total of $7.1 billion, down from 269 deals in 2012 worth $27.7 billion, according to data compiled by Bloomberg. China Molybdenum’s last bought assets in 2008, when it paid HK$350 million ($45 million) for three gold mines in China, according to the data.

Rio may reap $10.4 billion from asset sales, Deutsche Bank AG estimated in March. The company considered selling Northparkes, which is in New South Wales state, in 2009, and held onto it after copper and gold prices rose, Rio said in December that year.

Copper for delivery in three months, the London Metal Exchange’s benchmark, has dropped 13 percent this year to $6,862 a ton on July 26, entering a bear market in April.

Two gages of manufacturing in China, the biggest copper buyer, fell last month and factory-gate prices for June marked the worst run of declines since 2002, data showed this month, underscoring a sustained slowdown in the world’s top metals user.

China to become world’s biggest gold consumer: World Gold Council

Step aside India: China is set to become the world’s top gold consumer, the World Gold Council (WGC) predicts – echoing the China Gold Association’s similar announcement in June.

The Council revealed on Thursday that the country’s demand for gold is expected to reach 1,000 tonnes this year, Reuters reports. This compares with India’saverage yearly imports of 963 tonnes.

Marcus Grubb, managing director for investment for the WGC says this number could be even higher.

“We’re going to have a record year for Chinese gold demand,” Grubb told Bloomberg in a video interview. “In a year when growth is slowing in the Chinese economy. It’s quite interesting.”

The People’s Republic deregulated the gold market 10 years after India; Grubb believes the Asian giant has been playing “catch-up.”

“They’re going to buy more gold whatever happens to the economy,” he said.

The major driver behind this figure is investment and jewellery demand, with the latter accounting for a larger share much like in India, Grubb told Reuters.

The Sprott Group – a leading alternative investment manager - recently reported that gold contracts for physical delivery on the Shanghai Gold Exchange reached 1,098 metric tonnes year-to-date by the end of June. This represents approximately 40% of estimated global gold production in 2013, the investment group calculated.

Meanwhile the Indian government’s battle against gold imports may have had some success: the WGC anticipates imports will fall to 850 tonnes.

In an attempt to reduce the country’s current accounts deficit, the Reserve Bank of India has imposed various restricting measures on gold imports – most recently creating a requirement that gold importers set aside 20% of the yellow metal for export purposes.

The Council also predicts that global central bank gold demand will fall from a 48-year high of 532 tonnes in 2012 to 400 tonnes this year.

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China’s coal-fired economy dying of thirst

At first glance, Daliuta in northern China appears to have a river running through it. A closer look reveals the stretch of water in the centre is a pond, dammed at both ends. Beyond the barriers, the Wulanmulun’s bed is dry.

Daliuta in Shaanxi province sits on top of the world’s biggest underground coal mine, which requires millions of liters of water a day for extracting, washing and processing the fuel.

The town is the epicenter of a looming collision between China’s increasingly scarce supplies of water and its plan to power economic growth with coal.

“Water shortages will severely limit thermal power capacity additions,” said Charles Yonts, head of sustainable research at brokerage CLSA Asia-Pacific Markets in Hong Kong. “You can’t reconcile targets for coal production in, say, Shanxi province and Inner Mongolia with their water targets.”

Coal industries and power stations use as much as 17 per cent of China’s water, and almost all of the collieries are in the vast energy basin in the north that is also one of the country’s driest regions. By 2020 the government plans to boost coal-fired power by twice the total generating capacity of India.

About half of China’s rivers have dried up since 1990 and those that remain are mostly contaminated. Without enough water, coal can’t be mined, new power stations can’t run and the economy can’t grow. At least 80 per cent of the nation’s coal comes from regions where the United Nations says water supplies are either “stressed” or in “absolute scarcity.”

China has about 1,730 cubic metres of fresh water per person, close to the 1,700 cubic metre-level the UN deems “stressed.” The situation is worse in the north, where half China’s people, most of its coal and only 20 per cent of its water are located.

Desert state

Shanxi province – the nation’s biggest coal base, with about 28 per cent of production – has per capita water resources of 347 cubic metres, less than the Middle Eastern nation of Oman. Neighbouring Inner Mongolia and Shaanxi, which together contribute 40 per cent of coal output, have less than 1,700 cubic metres per person.

A government plan to boost the coal industry and build more power plants near mines will lift industrial demand for water in Inner Mongolia 141 per cent by 2015 from 2010, causing aquifers to dry up and deserts to expand, according to Greenpeace and the Chinese Academy of Sciences’ Institute of Geographical Sciences and Natural Resources.

About 28,000 rivers have vanished since 1990, according to the Ministry of Water Resources and National Bureau of Statistics.

“After five years there won’t be enough water in Ordos in Inner Mongolia,” said Sun Qingwei, director of the climate and energy campaign at Greenpeace in Beijing. “The mines are stealing ground water from agriculture. Local governments want their economies to boom.”

Ordos wells

Wells drilled near Haolebaoji near Ordos by Shenhua Group, the world’s biggest coal producer, have caused groundwater levels to drop to a depth of as much as 100 metres, drying out the region’s artesian wells, Greenpeace said in a report yesterday. Two calls to Shenhua weren’t answered.

The water that does exist is mostly polluted. A government survey published in February shows that only about a quarter of the groundwater in the North China Plain – an area that’s bigger than Greece and includes Beijing and Tianjin, the province of Hebei and parts of Henan and Shandong – is fit for human consumption.

Severe water pollution affects 75 per cent of China’s rivers and lakes and 28 per cent are unsuitable even for agricultural use, according to the 2012 book “China’s Environmental Challenges,” by Judith Shapiro, director of the Masters program in Natural Resources and Sustainable Development at the School of International Service at American University in Washington.

China standout

Geneva-based Pictet Asset Management’s $US3.17 billion global water fund doubled its exposure to stocks offering water services in China to 10 per cent since 2007. For Zurich-based RobecoSAM’s 611 million-euro Sustainable Water fund, “emerging markets offers the best opportunities in the world for water investments and China is the standout.”

Water-treatment companies Beijing Enterprises Water Group and China Everbright International, which Pictet invested in in 2009, are among its best performers this year, partly on prospects for stricter environmental regulation in China, said Geneva-based portfolio manager Arnaud Bisschop.

Beijing Enterprises has risen 55 per cent this year to HK$3.10 and Deutsche Bank sees it reaching HK$3.20 within a year. China Everbright is up 81 per cent to HK$7.10 and JPMorgan Chase estimates it will reach HK$7.60 by mid-October.

Severe pollution

“The best opportunity is in industrial water re-use, and for the mining industry, it is of the utmost urgency,” said Junwei Hafner-Cai, a manager of RobecoSAM’s Sustainable Water fund. “Water that has been released from the coal mines and from petrochemical plants has resulted in severe pollution on top of the water scarcity.”

A shortage of coal because of the lack of water to mine and process the fuel may force China to increase imports, pushing up world prices, according to Debra Tan, director at research firm China Water Risk in Hong Kong. China, which mines 45 per cent of the world’s coal, may adopt an aggressive “coal-mine grab” to secure supplies, said Tan.

Chinese demand will account for 25 per cent of global coal imports by 2015, London-based shipbroker ACM Shipping Group said in a report in April. Indonesia is the largest overseas supplier of power-station coal to China, which buys as much as 45 per cent of the Southeast Asian nation’s exports of the fuel.

China is responding with harsher limits on water usage, a new tariff structure that allows for steep price gains, and plans to spend 4 trillion yuan ($A701 billion) by 2020 to boost water infrastructure and resources.

Water caps

Caps introduced in January limit the annual increase of water used by the four biggest coal-producing regions to 2.9 per cent annually until 2015, while their combined coal output is set to increase almost 5 per cent a year, according to CLSA.

In Daliuta, the mine is “sucking up the groundwater,” said Sun at Greenpeace. Trains hundreds of cars long rumble along elevated tracks through the town center, hauling coal. On the highway to Yulin, trucks carrying the fuel queue nose-to- tail for more than five kilometres to pass through toll booths.

Daliuta’s coal output surged 26 per cent last year to 29.4 billion tons, according to owner China Shenhua Energy Co., the nation’s biggest coal producer.

The town’s river-turned-pond was dammed about six years ago to beautify the area for new apartment blocks along the banks, said Zhe Mancang, who owns a liquor store nearby. The artificial lake is now contaminated with waste water from the mines.

“I worry about the water,” said Zhe, 58. “But I’ve no choice. My family’s here and my customers are from the mines.”

Reduce use

The effect of water shortages extends beyond the north. New rules this year require the manufacturing hubs of Jiangsu and Guangdong provinces and Shanghai to reduce water use every year even as their economies expand. Nationwide growth in usage is capped at 1 per cent annually.

In the city of Guangzhou water prices rose 50 per cent for residents and 89 per cent for industrial users in May 2012 to help pay for improvements to quality and supply, according to an April report by Goldman Sachs Group Inc.

Stricter controls will raise the risk of investment in water-intensive industries and heavy polluters including coal, metals and paper production, especially in the north, said Tan.

“In an absolute worst case you’d see a large-scale shift in economic activity and population further south for lack of water, and manufacturing increasingly moving abroad,” said Scott Moore, a research fellow at the Harvard Kennedy School’s Sustainability Science Program in Cambridge, Massachusetts.

Diversion project

To alleviate the shortage in the north, the central government in 2002 approved the 500 billion yuan South-to-North water diversion project, the largest irrigation project in the world. The plan is to carry 44.8 billion cubic metres of water from the Yangtze river along three routes.

The 1,467-kilometre-long eastern canal to Tianjin is scheduled for completion at the end of this year. The central route to Beijing, more than 1,270 kilometres, is slated to open next year. The western route is still being planned.

Even this massive program may not be enough. The Asian Development Bank said in a report last year that China’s demand for water may exceed supply by as much as 200 billion cubic metres by 2030, according to some estimates, unless “major capital investments to strengthen water supplies are made beyond those presently planned.”

More efficient use would help. Chinese industry uses four to 10 times more water per unit of production than the average in developed countries, Tan wrote in a February report. Only 40 per cent of industrial water is recycled, compared with 75 per cent to 85 per cent in developed countries, the World Bank says.

Yellow River

China has had some success. In the late 1990s, so much water was being taken from the Yellow River, the nation’s second-longest waterway, that it dried up before reaching the sea for as much as 226 days consecutively. After quotas controlled by electronic sluice gates were implemented, the amount of water needed to generate 10,000 yuan of GDP fell to 308 cubic metres in 2006, from 1,672 cubic metres in 1990, according to the Yellow River Conservancy Commission.

China’s efforts to expand alternative energy, including investing $65.1 billion in clean energies like solar and wind power in 2012, aren’t enough to match rising demand. The nation’s dependence on thermal power generation, including gas and oil, will decline by just three per centage points to 76 per cent by 2030, Bloomberg New Energy Finance analysts Maxime Serrano Bardisa and Alasdair Wilson wrote in a February report.

Among the biggest losers are farmers, who have to dig deeper and deeper wells to find clean water, or are forced out by local governments who see bigger economic gains from mining.

Abandoned farms

In Zhanggaijie village, 90 minutes from Yulin city in Shaanxi, Li Qiaoling’s corn harvest slumped to 2 to 3 tons per mu (667 square metres) from 4 to 5 tons four years ago, she said. Li, 43, had to deepen her well to 60 metres from about 30 metres five years ago, she said.

Now she waits with about 200 villagers for compensation and news from local officials on where they will be relocated after coal mining polluted the local water supply, said Li.

“We’re angry because we have to leave,” said Li, who still farms and sells produce from her 11 mu plot, despite the contamination. “We’re worried about moving to a strange place.”

Premier Li Keqiang vowed at a March press briefing to crack down on pollution. “Being rich and well-off isn’t OK either if the environment deteriorates,” Li said.

Implementing such promises has proved elusive. In April, a group of 60 officials from the Ministry of Environmental Protection told Zhang Haibin, an associate professor at Peking University, that they “don’t dare to really monitor” pollution because it would affect growth, Zhang said at a forum. The officials said when “economic growth conflicts, environmental targets always give way,” Zhang said.

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What Chinese slowdown? Iron ore price closes in on 3-month high

The iron ore price jumped again on Wednesday as the steelmaking raw material builds on gains above $130 a tonne, levels last seen in April.

The benchmark import price of 62% iron ore fines at China’s Tianjin port climbed $0.20 to trade at a 12-week high of $132.10 a tonne according to data supplied by The Steelindex.

Recent strength in the iron ore price comes on the back of an improvement in China’s steel industry which consumes 65% of the 1.2 billion tonne a year seaborne trade.

China produces steel at almost the same rate as the rest of the world combined and projections are for record-breaking output of 790 million tonnes in 2013.

Persistent overproduction and woeful profitability has prompted authorities to once again introduce measures to cut the industry down to size with the Ministry of Industry and Information Technology saying Wednesday iron and steel was top of the list.

Steel prices were also buoyed by speculation that China may do more to stimulate its slowing economy with railway spending receiving priority.

News that the $106 billion originally scheduled on railway construction this year will be topped upon Wednesday helped Shanghai rebar, the most actively traded steel futures contract worldwide, hit a 3-month high of 3,694 yuan ($602) up 4.5% in July and recovering strongly from 2013 lows of $558.

The relatively rosy outlook for the iron ore and steel industry comes despite Wednesday’s worse than expected manufacturing and employment numbers for the world’s second largest economy.

China’s flash manufacturing PMI index which measures levels of economic activity among small and medium businesses, fell again in July to hit an 11-month low.

The employment index also fell and is now weakest since March 2009, the height of the global financial crisis.

Iron ore has also held up better than other industrial metals and minerals.

Copper, often thought to be the best barometer of the health of an industrialized economy, is down 11% in 2013, zinc is down just short of 10%, nickel has dropped almost 20% compared to a retreat in the iron ore price of 8.8%.

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China Resources Takeover Vote Clouded by Coal Allegations

State-run China Resources (836) Holdings Co.’s plan to combine two units is unlikely to survive a shareholder vote today, after the value of the $7.1 billion offer plunged following an accusation that the parent’s chairman deliberately overpaid for coal mines in 2010.

The target, China Resources Gas Group Ltd. (1193), closed trading Friday in Hong Kong about 17 percent higher than the value of the offer from China Resources Power Holdings Co., indicating investors consider the bid too low. China Resources Power offered 97 of its shares for every 100 shares in the gas unit.

The shareholder vote in Hong Kong follows a controversy last week over the 2010 purchase of three coal mines in Shanxi province. All five of the parent company’s units traded in Hong Kong sank after allegations against it and Song Lin, the parent’s chairman, were posted by the official Xinhua News Agency to its website on July 17. The parent is now being audited by the government, Xinhua reported July 19. Xi Jinping, who became China’s president in March, has pledged to investigate and eliminate corruption at the highest levels.

The offer “has little chance of receiving a nod from independent shareholders from both the buyer and the target,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. inShanghai. “Other than price, investors need to know why this merger makes sense, a question both companies’ common parent has failed to effectively address.”

Under Audit

China Resources Holdings is being audited by the State-owned Assets Supervision and Administration Commission, which has started reviewing company accounts, Xinhua reported, citing an unidentified official at the agency. SASAC will severely punish any misconduct, according to the report.

Two calls to the company’s general office went unanswered. Two calls to the SASAC spokesman’s office went unanswered.

China Resources Power said July 18 it paid a fair price for the assets after getting two independent assessments. It hadn’t made the deal public because the company said its equity interest in the projects was below the disclosure threshold.

The plan to integrate the power and gas units comes amid pressure in China for power generators to reduce pollution by shifting to cleaner fuels, such as natural gas.

The deal valued China Resources Gas at HK$24.64 a share, or HK$54.8 billion ($7.1 billion), including debt, a 13 percent premium to its closing price of HK$21.85 on May 9. China Resources Power shares have since tumbled from HK$25.40 on May 9 to HK$16.86 on July 19, valuing the gas unit at HK$38.56 billion.

Offer Price

The gas unit hasn’t traded below the offer price since May 27 and the gap has widened sharply after the overpayment accusation, with the power unit’s shares falling 16 percent in three days. China Resources Gas was trading just 6 percent above the value of the bid on July 16, the day before Xinhua first posted the allegations.

China Resources Power rose 4.9 percent to HK$17.68 a share at 11:03 a.m. in Hong Kong, while China Resources Gas was up 1.9 percent at HK$19.54, leaving the gas unit about 14 percent above the value of the offer.

“The company has not changed the offer,” a China Resources Power media official said July 19, declining to give her name, citing company policies. “The company will keep investors posted if anything happens.”

Senior management at China Resources Gas have said privately that they don’t expect the bid to be raised, a person with knowledge of the matter said. The person asked not to be identified because the information isn’t public.

Xinhua Letter

China Resources Power shareholders will vote on the deal today. It needs approval by half of the company’s minority shareholders, who represent 36 percent of the company’s equity. It will later be presented to minority shareholders in the gas unit, who also account for 36 percent of the company. The deal requires more than 75 percent of their approvals, with no more than 10 percent of minority shareholders casting a veto.

“As the deal’s popularity was already questionable before the current allegations, it looks very unlikely at this point that the deal can get approvals from minority shareholders of both companies,” Wu Fei, a Hong Kong-based analyst at Bocom International, said July 19. “I don’t see any reason why China Resources Gas shareholders would want to associate with China Resources Power, especially amid all the uncertainties created by the scandal.”

China Resources Holdings employs more than 400,000 people and controls businesses spanning power generation, cement production, real estate and finance. Unit China Resources Enterprise produces the country’s best-selling brand of beer with SABMiller Plc. (SAB) In 2012, China Resources Holdings had HK$41.2 billion of profit on HK$404.6 billion of sales, according to its website.

Minority Investors

In his letter, Xinhua’s Wang alleged that Song and other executives deliberately overpaid for the mine assets. China Resources Power bought an 80 percent stake in the mines for 7.9 billion yuan, while another company had offered to pay 5.2 billion yuan for the entire asset a few months earlier, according to the letter, which was addressed to the Communist Party’s Central Commission for Discipline Inspection.

A group of minority investors said July 18 they had filed a lawsuit in Hong Kong making similar allegations and demanding the company forfeit the purchase. They have no connection with Xinhua’s Wang, Li Su, founder of Hejun Vanguard Group, which is representing the investors, said at a briefing.

Datong Coal Mine Group is the company that planned to buy the same assets for 5.2 billionyuan in 2010 before walking away from the deal, according to the letter posted by Wang

Datong Coal has no connection with China Resources Power’s 2010 purchase and won’t comment on anything concerning the deal, a media official who only gave his surname as Liu, said by phone on July 19 from the company’s headquarter in Datong, Shanxi.

Three calls to Shanxi Jinye Coal Coking Group Co., the seller of the assets, went unanswered on July 19.

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China copper products import data analysis in June 2013

Scrap Copper
According to China Customs, China imported 340,000 tonnes of scrap copper in June down 22,000 tonnes or 6.17% MoM and down 7.9% YoY. YTD imports through June were 2.07 million tonnes down 7.2% YoY.

Recent copper price declines reduced market demand for scrap since some buyers purchased refined copper instead. Volatile prices also turned importers cautious however. In addition, imports of motors were also down due to price declines and hotter temperatures. All of these factors contributed to the decline in scrap copper imports during June.

SMM expects imports will remain generally stable during July, with import volumes between 330,000 tonnes to 360,000 tonnes. The impact from recent strict inspections by China Customs is waning, but supply tightness in the international market and rising demand from India and other countries will restrict goods available to China.

Unwrought Copper and Copper Semis;
China imported 380,000 tonnes of unwrought copper and copper semis during June up 5.9% MoM and 9.7% YoY and the first positive YoY growth for the past 9 months. Since imports volumes were high during the early months of 2012 but fell gradually as the year progressed, imports during the remainder of 2013 may still allow for positive monthly import growth on a yearly basis.

There have been some significant changes in imports during 2013, however. In 2012, refined copper imports accounted for 73% of total imports, but this proportion fell below 67% for the first 5 months of 2013 and was down to 65% for April and May. Imports of anode copper grew instead as supply shortages of scrap copper stimulated its use as a substitute.

During June, imports of refined copper should be around 250,000 tonnes. The growth of imports will be based largely on the arrival of delayed goods due to the port strike in Chile and a more positive ratio. In addition, tight liquidity encouraged demand for imports using L/Cs, which also added to the higher imports in June.

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Global miners don’t let China slowdown affect output

Even a slower version of China’s economic growth engine is enough to keep global miners busy, or so it seems. Production data reported by a few large global mining companies showed output growing at or ahead of analyst estimates.

China’s gross domestic product (GDP) in the June quarter was estimated to have risen by 7.5%, slower than 7.7% in the earlier quarter. A slowing Chinese economy had led to scaled-down growth estimates for resources such as iron ore, copper and aluminium. Growth in non-European developed markets, too, could be responsible for the optimism shown by mining companies.
Earlier this month, major aluminium producer Alcoa Inc. kept its growth estimates unchanged for the year. On Wednesday, BHP Billiton Ltd said that iron ore output in June rose 19% on a sequential basis, and copper output by 8%. Both divisions’ output exceeded analyst expectations, according to news reports. The company’s shares rose by 2.3% on the Australian Stock Exchange on Wednesday. On Tuesday, another mining company Rio Tinto Plc had announced a 7% increase in its iron ore output that was in line with forecasts. Both companies have maintained their full-year output guidance. Rio Tinto’s shares rose by 2.7% on the London Stock Exchange.
If mining firms are producing at or above forecast output, then are fears of China’s slowing appetite for commodities overstated? Or could it be that large mining companies have decided to play a different strategy to combat the slowdown? Rather than cutting output and hoping to squeeze prices upwards, they may be seeking to keep the focus on volume growth.
Margins are sensitive both to prices and costs. Companies have little control on prices that have been declining, so they’re turning the screws on costs. Rio Tinto, for example, plans to lower its operating cost base by $3 billion by 2014, of which $2 billion will be achieved in 2013 itself. Exploration, too, is being scrutinized closely and Rio Tinto plans to cut its annual exploration and evaluation expenditure by $750 million.
A similar story is playing out at other mining companies. The large companies are focusing on keeping sales at healthy levels and cutting per tonne costs, which can lessen the impact of falling prices and ensure healthy levels of operating cash flows.
What impact this will have at the industry level is not clear because companies are hiking output at a time of dull demand. Will they grab share from the smaller companies which may not have the same leeway to cut costs?
Either way, investors seem to like what they see. Rather than sitting back and complaining about the global mess, the companies are going all out to sell more at a lower cost and generate returns for shareholders. This strategy may not work for all industries. In the domestic context, this underlines the fact that a focus on volume growth, even in an economic slowdown, and even if price realizations are weak, can be a strategy worth considering.

Chinese Power Firm Defends Purchase of Coal Mines

BEIJING—An arm of one of China’s biggest conglomerates is defending itself against a Chinese media report, which has hammered its share price, and a shareholder lawsuit related to the purchase of coal-mining assets.

Power producer China Resources Power Holdings Co. 0836.HK -1.00% said Thursday in a statement filed to the Hong Kong Stock Exchange that payments made by an associate company in 2010 to purchase Chinese coal-mining assets from a local company were below the appraised value and made after “arm’s-length negotiations.”

China Resources said that it hadn’t made an earlier statement about the acquisitions because the company that made the purchases—Taiyuan China Resources Coal Co. Ltd.—is a joint venture in which it owns an indirect 49% stake. It said such disclosure therefore isn’t required. China Resources said a number of other companies own the rest of the joint venture.

China Resources didn’t give a value for deal in its statement to the Hong Kong Stock Exchange. A company spokeswoman said she has no further comment.

On Wednesday, a post on a verified Sina Weibo microblogging account with the name of Wang Wenzhi, a senior reporter of the Economic Information Daily newspaper, alleged that the company had overpaid for the mining assets. The newspaper is affiliated with China’s official Xinhua news agency, though it isn’t regarded as an official mouthpiece of the Chinese government. The reporter didn’t respond to a request for comment.

Shares of China Resources Power fell 1.78% to close at 17.66 Hong Kong dollars Thursday after falling about 10% Wednesday.

China Resources’ state-owned parent, China Resources (Holdings) Co., said on its website Wednesday that it reserved the right to take legal action against anyone found to have made libelous statements against the company.

A group of minority shareholders in China Resources told a news conference in Beijing Thursday that they have filed a lawsuit in Hong Kong against the company’s board. The suit alleged that mining permits linked to the mines purchased had expired at the time of the deal, reducing the value of the assets.

China Resources said it has obtained a valid permit for one of the mines this year and that it is in the process of gaining permits for the other two mines. All of the mines are in Shanxi province in northern China.

A Hong Kong court will hear the case in August, the shareholders said.

The parent company is a major state-owned conglomerate with holdings in power, property, food, retail and a number of other industries.

The People’s Daily website quoted an employee at an anticorruption hotline of the Communist Party’s Central Commission for Discipline Inspection saying that it had received a complaint on the deal and was addressing the issue. It didn’t offer further information, and calls to the commission were unanswered.

—William Kazer